The fortunes of Latin America’s two largest economies are changing.

For most of the last several decades Latin America’s largest country, Brazil, outpaced its northern neighbor, Mexico, in terms of its ability to attract foreign direct investment. In recent years, however, with respect to Mexico and Brazil, it appears that there has been a reverse in fortunes. While Mexico is increasingly becoming the beneficiary of the steadily rising cost of manufacturing in China, foreign direct investment in Brazil has been trending downward since 2011, when the nation saw external capital inflows of US $50 billion make its way into the Brazilian
manufacturing sector.

According to information published recently in the Financial Times, “In 2014, Mexico attracted 366 greenfield investment projects totaling an estimated US $33 billion and Brazil 322 projects at US $18 billion.” The FT also went on to report that “Together (Mexico and Brazil) mopped up nearly 60 percent of capital expenditures in new projects or expansions of existing facilities in Latin America and the Carribean last year.”

Mexico leads the way 

Although Mexico and Brazil have both experienced steady declines in GDP growth over the period 2010 – 2014, Mexico from 5.1% to 2.1% and Brazil from a robust 7.6% to a paltry .01%, Mexico has shown greater resilience and consistency in its ability to attract capital inflows into its manufacturing sector at a respectable rate. This is due, in great part, to the impressive dynamism that has been manifest in the Mexican automotive sector in the last several years. In addition to a thriving automotive sector there are several other differentiators that have changed the
relationship between Mexico and Brazil, and the ability of each to attract billions of dollars in foreign direct investment:

  • Mexico benefits from and will continue to see the economic dividends that both its proximity to the United States and membership in the NAFTA pay;
  • Mexico increasingly becomes more competitive on all fronts when considering the “total landed costs of manufacturing.

As regards the wage factor when comparing Mexico and Brazil, the Economist Intelligence Unit forecasts that by the end of 2015 “nominal wages for all sectors will increase 7 percent in Brazil.” Wage increases in the Mexican manufacturing sector will rise at a pace of only 4.3% across the board.

The changing economic fortunes of Mexico and Brazil

At this point in time Mexico and Brazil seem to be at an economic crossroads in their competitive relationship as Latin America’s traditional economic leaders. While the Mexican economic engine continues its movement forward, Brazil’s appears to be stuck in neutral.